Stores for dignified sales

From the consumers’ perspective, factory-outlets offer brand names at lower prices in a one-stop shopping environment. However, factory outlets have a basic purpose of offering all the slow movers/overruns that are part of a production cycle. It is a planned and convenient way to sell merchandise in a properly organised manner, extending the brand to a larger segment of customers. Also, it prevents stores from getting overloaded and jammed with merchandise that doesn’t sell.

In times driven by cut throat competition and constant need for reviving the approach of one’s brand in the market, factory outlets provide to be a feasible option, penetrating the market extensively. Harkirat Singh, MD, Woodland calls it a “dignified sale” which gives a platform to sell the overruns/ slow mover goods instead of stocking them at the regular outlets.

Being different

Factory outlets draw a completely different consumer, the retail ambience and experience being very different from the main store, but within the overall brand identity. Hemchandra Javeri,

Co-Founder and Executive Director, Forum Synergies India PE Fund Managers P Ltd says, “The key consumer benefit is the price of each stock keeping unit (SKU), and that must ensure high velocity, so display and communication must ensure each SKU is visible and moves quickly off the shelf.”

“When we started the pioneering work of strengthening our factory outlet chain at Nike in India in the early 2000s, others were skeptical and critical. But, that helped us manage our inventory better and deliver better retail experiences in our main stores,” comments Javeri.

The crucial criterion which sets factory outlets apart from their regular counterparts is the price points that they offer. As put up by Singh, factory outlets are a subtle way of liquidating products and the way a franchisee would run them is a different game all together. Woodland does not indulge in franchising when it comes to their factory outlets.

Merchandise assortment and location

As shared by Singh, there are primarily three kinds of products in factory outlets - left over (sizes not available or the particular colour is not sold out well); factories manufacturing a brand’s products also produce a certain percentage of defected products (having minor technical defects which a layman cannot point out) and in the factories itself there are over runs (as part of the production).

Rakesh Pandey, President - Retail, Raymond Limited avers, “The merchandise assortment for factory outlets is predominantly planned by the size of the merchandise involved.” 

Javeri comments, “The main emphasis must be on getting the right product for the catchment. For example, for an apparel brand, there would be no point sending warm products to Mumbai stores. Sizes tend to be the other main element depending on the catchment.”

The location is not at high streets/malls but usually on areas which are known to have factory outlets. It is also learnt that intenationally, most of the brands have a corner in the store itself which sells the discounted merchandise. However, in India ‘quality’ becomes an issue with the customers. It is also a matter of fact that the customer has realised and matured over the period of time. One such instance which we can refer to here is that in prevalent times, the word ‘discount’ is hardly used but what is more often used is the term-’end of season sales’.

Spinning money

It is basically to be understood that when you sell discounted products, in a way, brand value goes down and the market gets disturbed. Singh says, “Factory outlets help you manage your stock better, making way for regular branded stores to get aligned with the season and market expectations.”

Pandey opines, “Factory outlets contribute to the market penetration and the distribution network of a retail brand across a vast country like India. Network spread being a key success factor for retail, factory outlets thus become a vital contributor.” Javeri adds, “As we had envisaged, the factory outlets were profitable, and more importantly, successful in drawing an entirely new consumer base for us at Nike. In many brands, these outlets account for about 7 to 10 per cent of total revenues.”

However, there is also a different opinion in this regard. The contribution to turnover depends from brand to brand and also, the aim is not to add to the turnover when it comes to factory outlets. The important bit is that they allow the slow moving items to move out. Singh opines, “They do not contribute to the turnover in a significant way for us, since we don’t even have roughly 0.5 per cent of our production that is rejected.”

He further adds, “Given a chance, I would not recommend too many of them. In our factories too, we try to reduce the percentage of defects because they give a loss to us.”

Javeri shares his viewpoint and comments, “International brands will never allow a defective product to carry its logo, and factory outlets should carry only slow moving or dated merchandise. Gradually, the image will change as companies get this channel better and investments increase. The success of chains like Megamart will also help improve the image of this channel.”